HM Revenue & Customs (HMRC) have published revised Settlement terms for those in a Disguised Remuneration tax avoidance schemes and now seeking to exit:
- Employee Benefit Trusts (EBTs)
- Employer Financed Retirement Benefit Schemes (EFRBS)
- Contractor loans.
Somewhat unexpectedly, the new Settlement terms are more favourable from a taxpayer’s point of view than the terms they replace.
The new terms
In summary, and subject to the specifics of each matter, the new terms include:
- The amount taxable on the individual is reduced for any charges and/or fees suffered. In other words, the net amount received (typically as a loan) is the amount that is taxable;
- Where the Trust Deed allows, the Employers element of National Insurance Contributions (NICs) is deducted from the amount of the contribution that is now taxable on the employee. In other words, the net amount received (typically as a loan) is the amount that is taxable;
- Any tax and NIC already paid under the benefits in kind legislation can be offset. This is providing they are in time to be amended;
- Where an employee seeks to settle but the company no longer exists, the employee will not have to pay any NICs.
- An employer will be able to claim a deduction for corporation tax purposes for the Income Tax (PAYE) and NICs due on the basis that either section 222 or 223 of the Income Tax (Earnings and Pensions) Act 2003 is payable by the employee at the same time as the Settlement;
- Inheritance tax may still be payable;
- Interest is payable where HMRC has an open enquiry or is within time to open an enquiry or an assessment is already in place;
- Any Court fees incurred by HMRC in pursuing an NIC liability are payable;
- Penalties may apply depending on the circumstances and type of scheme entered into;
- Time to Pay over a number of years may be available.
Those wishing to settle will need to be registered with HMRC by 31 May 2018. All the required information (names, UTR, dates and amounts, etc.) needs to be sent to HMRC by 30 September 2018.
Action to be taken
Anyone (company or individual) seeking to exit from an EBT or EFRB or Contractor Loan arrangement should seek advice on how the new terms will impact upon the amounts due to HMRC.
Anyone seeking advice can contact me at firstname.lastname@example.org or Andy at email@example.com.
Failure to take action now will result in all outstanding loans becoming taxable in April 2019 when the loan charges take effect.